Manchukuo and the Economic Miracles of Japan and Korea

In 1931, after a manufactured "incident," the Japanese Army conquered Manchuria. They then set up what is always referred to as "the puppet state of Manchukuo," with a Chinese Prime Minister and the sad Pu Yi (the "last emperor of China") as head of state, but with all real power wielded by Japanese "deputies." Manchukuo was a brutal colonial regime where hundreds of thousands of Chinese and Koreans were treated as slaves, but it was also a grand experiment in economic planning.

Manchukuo had vast deposits of coal and iron ore and by 1931 it already had the beginnings of an industrial complex. The Japanese leadership set out to make it into a economic engine that would power their war machine. They sent thousands of young Japanese to make this economic explosion happen. In a peculiar irony, many of the economics and engineering majors sent to Manchukuo were leftists. Knowledge of Chinese was a prerequisite, and at that time it was mainly leftist or otherwise counter-culture Japanese who studied Chinese, a decadent tongue rejected by nationalists. Also, in the 1930s it was difficult to find a good job in Japan, and left-wing leanings made it even harder; it was actually illegal in Japan to write or speak anything that advocated changing the political system. Shut out of the Japanese bureaucracy and the big corproations, ambitious left-wing students flocked to Manchukuo.

Japanese-built Steel Works in Manchukuo

In Manchuria, those Japanese planners achieved what they set out to. They multiplied production of iron ore, coal, and steel, and expanded the economy into chemicals, automobiles, airplanes, and more. They built an impressive railway system to move all this around, which is still in use. At first this was done by direct state intervention, under a five-year plan modeled on Soviet plans. But in preparing for the second five-year plan it was decided to open up the field for investment by Japanese industrial conglomerates, the zaibatsu. Sold on the virtues of dictatorial control and a vast work force of semi-slaves, the zaibatsu responded enthusiastically. Nisan moved its headquarters to Manchukuo and created an industrial empire, and the other top firms also made large investments. But the economy remained state-directed, companies investing only in enterprises approved and generally created by the state planning agencies.

The director of Manchukuo's economy in this period was a man in his late 30s named Kishi Nosusuke. In 1941 Kishi moved back to Japan and became Vice Minister of Commerce and Industry, a post he held until the end of the war; most historians think that by 1943 he was in charge of Japan's economy. At the war's end he was jailed by the Americans and charged as a war criminal, but his trial never came up and in 1948 he was released. After a few years of retirement he re-entered politics as a conservative legislator and in 1957 he was elected Prime Minister of Japan. There he continued to promote the same economic policies Japan had developed in the early 20th century and perfected in Manchukuo: private investment firmly guided by the state toward national goals.

GDP per Person in South Korea, 1911 to 2010

But it wasn't only Japan that benefited from the great colonial experiment in Manchukuo:

At the height of the Cold War, in 1961, a staunch anticommunist took power in South Korea by coup d'etat. Following the Japanese wartime model of a planned economy under military rule, boosted by Korean zaibatsu operating in tandem with the government, the South Korean economy grew apace. The strongman in question had graduated in 1942 at the top of his class from the Manchukuo Military Academy in Shankyo, and had been a lieutenant in the Japanese Kwantung Army. In 1948, he was expelled from the South Korean Army for taking part in a plot against Syngman Rhee. His Japanese name during the war Takagi Masao. His real name was Park Chong-hee. One of his great Japanese supporters was Kishi Nosusuke, a fellow veteran of the Manchukuo puppet state.  (Ian Buruma, Year Zero: a History of 1945, p. 270)

The World War II era was not just a time of immense conflict, but the apogee of rational planning in economic affairs. All the wartime economies were under government control, even in the US, and it led to staggering production of war material: to take one example, the US launched more than 6,000 ships during the war years, including 28 aircraft carriers. From that experience most of the world took the lesson that planned economies did better, and outside the US the economic growth of the 1950s and 1960s was heavily planned and managed by governments. Then in the Rust Belt era of the 1970s that started to go sour, and people in Europe and the US turned toward freer markets and lower taxes to get growth going again. I wonder: was either the obsessive planning of 1930 to 1970 or the turn against it rational? Or was it just a change of intellectual fads? Did central planning make more sense in the coal and steel era than today? Or was it that consumer choice was just not very important in 1930 to 1970, so central planners were better able to make what was wanted? I find this all puzzling, and I have grave doubts that neoclassical economics can really explain any of it.